Federal Government Defers Capital Gains Inclusion Rate Increase to 2026

  • Accounting
  • Corporate Tax
  • Personal Tax
February 3, 2025
Two sets of hands working with documents and a calculator

On January 31, 2025, the Minister of Finance and Intergovernmental Affairs announced a deferral in the implementation of the planned capital gains inclusion rate increase. Initially set to take effect on June 25, 2024, the Federal government has now proposed to delay this change until January 1, 2026, pending legislative approval.

Key Highlights of the Announcement

  • The increase in the capital gains inclusion rate from one-half to two-thirds will now take effect on January 1, 2026, instead of June 25, 2024, provided the legislation is passed.
  • The increased inclusion rate will apply to:
    • Capital gains exceeding $250,000 annually for individuals.
    • All capital gains realized by corporations and most types of trusts.

Preserved and New Capital Gains Exemptions

While the capital gains tax rate change is postponed, the government is maintaining other tax measures announced alongside the inclusion rate increase.

  1. Increase in Lifetime Capital Gains Exemption (Effective June 25, 2024)
  • The Lifetime Capital Gains Exemption (LCGE) will increase from $1,016,836 to $1.25 million.
  • This applies to the sale of small business shares, farming, and fishing property.
  1. Canadian Entrepreneurs’ Incentive (Effective 2025 Tax Year)
  • This incentive reduces the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains.
  • The maximum will increase by $400,000 per year, reaching $2 million by 2029.
  • Combined with the $1.25 million LCGE, entrepreneurs will receive tax benefits on capital gains up to $6.25 million.

Final Thoughts

The Minister has stated that legislation will be introduced to implement the deferred inclusion rate increase, as well as the Lifetime Capital Gains Exemption increase and the Canadian Entrepreneurs’ Incentive. As such, there may be an opportunity to take advantage of both the LCGE and Canadian Entrepreneur’s Incentive prior to the potential capital gains inclusion rate increase. Individuals and businesses should consult with their tax advisors to take advantage of available exemptions and develop strategies to effectively manage potential tax liabilities.

Taxpayers, particularly those with possible high-value dispositions of capital property should consult with their Bateman MacKay tax advisors to assess the best strategies in light of these changes.  Subscribe to our blog or follow us on LinkedIn for ongoing accounting and tax articles to bring you and your business value.